Third Party Problems

Question 1

What is entrustment ART2?

Answer 1

Art. 2: owner who entrusts goods to merchant who deals in goods of the kind has no rights against bona fide purchaser (sue for conversion instead)

Question 2

Who is a third party beneficiary?

Answer 2

Definition: 2 people enter contract intending to benefit third party

Question 3

Explain the difference between intended and incidental beneficiaries

Answer 3

Intended: person to whom performance was to be given according to contract; has legal rights
Incidental: just happens to benefit from contract; no legal rights

Question 4

When can rescission and modification of a third party beneficiary contract happen until?

Answer 4

Promisor and promisee can rescind or modify contract until rights of third-party beneficiary have vested
When TPB learns of contract and relies, vested
EXCEPTION: contrary language in contract controls

Question 5

What is the promisor’s liability under a third party beneficiary contract?

Answer 5

Promisor is liable to third party beneficiary and to promisee

Question 6

What is the promisee’s liability under a third party beneficiary contract?

Answer 6

Promisee is liable to creditor beneficiary (i.e. when not a gift)

Question 7

What is the rule of delegation of duties?

Answer 7

Rule: contractual duties may be delegated without consent of person to whom performance owed

Question 8

What are the exceptions to the rule of delegation of duties?

Answer 8

1) Where contract language controls (MBE if contract prohibits assignment it also prohibits delegation) and
2) Where there is special skill or reputation.

Question 9

Where does liability rest when there has been a delegation of duties?

Answer 9

delegating party remains liable and delegate who gets consideration is liable

Question 10

What is an assignment of rights?

Answer 10

2 people make contract, later one transfers his rights to third party

Question 11

What is the language of assignment of rights?

Answer 11

Must have language of present transfer ‘I assign’.

Question 12

What consideration for assignment of rights is required?

Answer 12

It is not required but will affect revocability.

Question 13

What is the contract language of the assignment?

Answer 13

Contract language controls
Prohibit assignments: assignment valid but breach
Void assignments: assignment invalid

Question 14

Doe the duties of obligor change in assignment?

Answer 14

No, cannot substantially change duties.

Question 15

What is liability under assignment?

Answer 15

Obligor liable to assignee.

Question 16

What about multiple assignments. Who prevails?

Answer 16

First assignee for consideration prevails over subsequent assignees and prior gratuitous assignees

EXCEPTION: later assignee for consideration prevails if does not know of earlier assignments AND is first to get payment from or judgment against obligor